Prometheus 6

Private Equity Had Role in Crisis, Says Carlyle Co-Founder
Deals With Cheap Debt 'Intoxicating'
By Thomas Heath
Washington Post Staff Writer
Wednesday, October 14, 2009

Carlyle Group co-founder David M. Rubenstein acknowledged Tuesday at a conference on private equity in Dubai that his industry helped drive the recent financial bubble, whose eventual implosion contributed to the credit crisis and the current recession.

"Private equity contributed to the problem," Rubenstein said, according to a Carlyle spokesman who was present at the speech. "I think we made some mistakes ourself."

Rubenstein was referring to the rise in prices that Carlyle and other private-equity firms paid to buy assets, offers driven by cheap credit and loose loan terms that allowed private equity to put up very little of its own money.

During the private-equity heyday of 2006 and 2007, firms put together deals worth tens of billions of dollars to buy companies, saddling the acquired companies with huge debt burdens. The subsequent market crash and financial meltdown reduced the value of many of those acquisitions, forcing some private-equity firms to write down their investments. In addition, falling revenue caused by the recession has made it difficult for some firms to make their debt payments.

"Clearly we contributed a little by paying higher prices. We rely on very cheap debt. It was intoxicating to get debt with no covenants," Rubenstein said. "People wanted to do more and more deals, and there was a greater focus on very large deals."